McKinsey and Company

After drafting the infamous Blockchain’s Occam Problem article which received much flak from the blockchain community for calling the technology relatively complex, expensive, unstable, and unregulated, ‘the Firm,’ seems to have changed its tone. While it is alarming that a company so revered and pro-blockchain hasn’t talked about the tech a lot post-Occam Problem in January, their latest piece on the technology, Blockchain and retail banking: Making the connection highlights ‘several areas where the technology could create value for retail banks.’

In particular, McKinsey is keen on three use-cases:

1. Remittance
2. KYC and Fraud Detection
3. Risk Scoring

However, McKinsey lists four significant issues that need to be solved before Blockchain’s application into retail banking. These issues seem to be generic ones that could be applied to several sectors. The firm also lists solutions for the same:

• Challenge: Blockchain networks are transparent to their members, meaning that there are limitations to anonymity in some scenarios.
• Solution: Several companies are experimenting with “tokenization,” which disguises sensitive data by substituting it with a token that serves as a reference.
• Challenge: Real-time settlement is currently impossible due to the lack of fungibility between crypto-assets and fiat currencies.
• Solution: Stablecoins are one solution, but they will require correspondent banks to make the eventual conversion.
• Challenge: Costs associated with switching from individual to shared systems, questions about accountability, cultural and practical challenges Solution: Banks must create large networks to achieve benefits at scale, requiring data standardization and collaboration, and solve the so-called coopetition paradox.
• Challenge: Customers may choose to restrict access to protect their privacy and security.
• Solution: Financial institutions are likely to need to work hard to bring them on board.

This blockchain report, in conclusion, suggests four points that could help increase adoption:

1. More seamless transition between fiat and digital assets, so that customers do not risk losses as they switch back and forth.
2. Regulation, so that participants have certainty around the status of crypto assets, rules of engagement, and investor protection.
3. Consumer identities should be created on the Blockchain, enabling banks to offer real-time loan decisions based on authenticated ID.
4. There needs to be a strategic watershed. Executives need to believe that the long-term benefits of Blockchain are worth the cost.

Boston Consulting Group

When the most innovative consultancy of the big 3, BCG, published Capturing the Value of Blockchain in April of 2019 – it brought many enterprisey-eyes on the technology. BCG sets the record straight by starting the article off by claiming that investors are continuing to pour record-breaking sums into space. It then goes on to list four primary sources of value that blockchain use cases can deliver:

1. New Business Models
2. Operational Efficiency
3. Risk Mitigation
4. Social Impact

BCG then talks about the determination of models, where it lists ‘Linear’ and ‘Network Effects’ for the same. They explicitly state that while blockchain use cases that deliver network effects have the potential to be true disruptors, it requires the following:

1. Significant financial and technical resources
2. High tolerance for risk
3. The ability to convince a critical mass to join a nascent platform
4. An established POC

BCG lists three most promising use cases for eight specific industries according to the linear, network effects, and their hybrid models – and mentions how the technology is still new, the list of possible avenues to take are wide and the operational and partnership requirements to deliver on any of them are often extensive.

PwC

PwC survey of 600 executives starts with six critical figures:

1. 84% of respondents are actively involved with blockchain
2. 45% believe trust could delay adoption
3. 30% see China as a rising blockchain leader
4. 28% say interoperability of systems is a key for success
5. 52% of companies are in the R&D phase
6. 15% have their projects live

Three critical observations from their blockchain report include:

1. Financial services will be the current and near-term leader of blockchain.
2. Potential in industrial products, energy and utilities, and healthcare.
3. The US is the most advanced territory in developing blockchain today. In three to five years, China will take over.

A majority of their survey then focuses on blockchain’s barrier to adoption:

The beautifully phrased final section, titled ‘Why it’s hard to trust a blockchain’ should be read in its entirety:

Blockchain, by its very definition, should engender trust. However, in reality, companies confront trust issues at nearly every turn. For one, users must build confidence in the technology itself. As with any emerging technology, challenges and doubts exist around blockchain’s reliability, speed, security, and scalability. Also, there are concerns regarding a lack of standardization and the potential lack of interoperability with other blockchains.

Also contributing to the blockchain trust gap is a lack of understanding. Even now, many executives are unclear on what blockchain is and how it is changing all facets of the business. Although the public narrative has moved beyond bitcoin, even the more recent focus and hype around ICOs only hint at the potential impact. Blockchain’s role as a dual-pronged change agent — as a new form of infrastructure and as a new way to digitize assets through tokens, including cryptocurrency — is not easy to explain. Think about other new technologies: users can try on virtual reality goggles or watch a drone take flight. However, blockchain is abstract, technical, and happening behind the scenes.

Another challenge for blockchain is building trust in the network. It is perhaps ironic that a technology meant to bring consensus hits a stumbling block on the early need to design rules and standards. Take payment systems and mechanisms in banking. Though everyone plays by the rules of existing systems today, they don’t necessarily agree on how an alternative blockchain-based model should be designed and operated.

Likewise, there’s a lack of comfort regarding regulation. The majority of regulators are still coming to terms with blockchain and cryptocurrency. Many territories have begun studying and discussing the issues, particularly as they relate to financial services, but the overall regulatory environment remains unsettled.

Deloitte

Compared to other studies, Deloitte’s survey (n=1386) is one of the most optimistic blockchain surveys in 2019. Key findings include:

• 53% (2018: 43%) of enterprise respondents cite blockchain as a top-five strategic priority
• 56% (2018: 59%) believe blockchain will disrupt their industry.
• 6% are unsure or don’t see the need to use blockchain.
• The top five blockchain advantages:
  • New business models and value chains (23%)
  • Greater security or lower risk (23%)
  • Higher speed compared to existing systems (17%)
  • Greater transparency (11%)
  • Lower costs (9%)
• The survey respondents were biased towards IT executives (56%)
• 42% of startups cited the main blockchain benefit as new business models and value chains compared to 23% for enterprises
• Additionally, enterprises have a greater belief that blockchain provides greater security (71%) as opposed to 48% of startups
• 86% believe that blockchain technology is broadly scalable and will eventually achieve mainstream adoption
• 43% view the technology as overhyped

• The top five barriers to greater blockchain investment are:
  1. Implementation
  2. Regulatory issues
  3. Potential security threats
  4. Lack of in-house capabilities
  5. Uncertain ROI
• The top five use-cases are:
  1. Technology, media, and communication (26%)
  2. Financial Services (15%)
  3. Manufacturing (12%)
  4. Retail, wholesale and distribution (7%)
  5. Professional services (6%)

KPMG

KPMG surveyed 740 global technology leaders for its 2019 Technology Industry Innovation Survey. Following are their findings in the context of blockchain technology:

• 48% percent of respondents said blockchain would likely or very likely change the way their companies do business within three years
• The rest of the respondents were neutral (24%) or didn’t believe (27%) blockchain will change their company’s business processes within three years
• 41% said it was likely or very likely for technology companies to implement blockchain within the next three years, 31% were neutral and 28% said they wouldn’t, or it’s unlikely
• IoT was the most promising area (27%) for blockchain disruption in the next three years. Trading such as platforms for small businesses came second with 22%. Reducing cyber risk (for instance, using ledger identity authentication), was ranked third with 20%. In fourth place was contracts (18%) including payments, insurance, and blockchain identity
• The top three blockchain adoption challenges:
  • Unproven business cases (24%)
  • Technology complexity (14%)
  • Lack of capital or funding (12%)

teQatlas

TeqAtlas is a blockchain, IoT and AI analysis and research company. We couldn’t establish the proof of credibility of their reports so their findings must be taken with a grain of salt. Four key observations from them include:

• Digital Currency Group dominates in the number of deals, 32 deals ahead of the next two investors combined (Pantera Capital and Blockchain Capital)
• A majority (8 out of the top 10) of the most active blockchain investors are located in the US. More than half of all investors are Venture Capital firms.
• Majority of investors are focused on FinTech blockchain startups
• Financial sector seems to be the fastest way to get investments – it has over 150 deals

The following are the most important charts:

Six Important Takeaways

• Financial Services emerges as the most promising use-case of them all
• Blockchain technology is still in the nascent stage
• Cognitive bias against blockchain technology still exists
• The three biggest hindrances in front of mass adoption seem to be:
  • Co-opetition paradox
  • Regulatory Issues
  • ‘Unproven’ business cases
• New business models (for instance, p2p energy trading) – is something organizations can bet on
• Sentiments seem to be better in the first half of 2019 than its 2018 counterpart

Disclaimer and Fair Use Statement for Blockchain Report 2019

This document contains quotes and statements from different organizations – the use of which may not have been specifically authorized by the copyright owners. This blockchain report is available to explain issues relevant to blockchain or to illustrate the current condition of the blockchain industry. Any bit of information in the blockchain report from McKinsey, BCG, PwC, Deloitte, KPMG, and Teqatlas – and other organizations named in this document are the properties of the respective companies. This document has no commercial value. The document constitutes a ‘fair use’ of any such copyrighted material (referenced and provided for in section 107 of the US Copyright Law).

The opinions and interpretations contained in this blockchain report are based on different organizations’ publically available blockchain reports and surveys – hence, Deqode does not take responsibility for the verifiability of the statistics present in them. If you wish to use any copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

Suggested Reading: https://deqode.com/blog/investing-in-cryptocurrency/

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To understand where blockchain could fit in auditing processes, let us establish a standardized audit timeline.

• The organization’s management prepares the financial report. They prepare it in accordance with legal requirements and financial reporting standards.
• The organization’s board approves the financial report.
• Auditors start their examination by gaining an understanding of the organization’s activities and considering the economic and industry issues that might have affected the business during the reporting period.
• For each major activity listed in the financial report, auditors identify and assess any risks which could have a significant impact on the financial position or financial performance, and also some of the measures (called internal controls) that the organization has put in place to mitigate those risks.
• Based on the risks and controls identified, auditors consider what management has done to ensure the financial report is accurate, and examine supporting evidence.
• Auditors then make a judgement as to whether the financial report taken as a whole presents a true and fair view of the financial results and position of the organization and its cash flows, and is in compliance with financial reporting standards and, if applicable, the Corporations Act.
• Finally, auditors prepare an audit report setting out their opinion for the organization’s shareholders or members.

Suggested: Key Concepts of Blockchain

Where does blockchain fit in?

Maintaining transparency in audits.

One of the most appealing aspects of blockchain technology is the degree of transparency that it can provide. The technology can allow for the immutable tracking of anything across the audit process. The use of data visualization will allow auditors to not only provide assurance over the systems, but it will also allow consulting firms to assist with planning and decision making. Following are some of the key points for usage of blockchain in audit transparency:

1. The entire audit process will be moved to blockchain technology. In a nutshell, this will provide two benefits:
   • Many organizations hire multiple audit teams. There is a need for a corruption-free ecosystem for synchronization between audit reports between the auditing teams. When we use blockchain for auditing process, auditors will be aware of the audit process done by another audit team. This will increase the genuineness of the system.
   • The organization will be aware of the audit process, thereby tracking the audit process lucidly.
2. The audit reports will be put on the blockchain. The next auditors can verify if the audit is performed in a right manner.
3. The financial reports of the organization can be put on the blockchain. This will ensure that the reports are immutable and cannot be denied by the organization later.

Removing dependency of the enterprise in auditing.

An audit is often a heavy process. It requires professionals to spend a significant amount of time to review a large number of transactions in the clients’ books.

As blockchain has its foundation in the distributed ledger concept and cryptology. It promises transparency, immutability, security, auditability, high cost-efficiency and is ever available. Blockchain technology has an immediate application in the external confirmation procedures of audit verification.

External Confirmations

External confirmations are a critical part of all audit processes. They give the audit team the ability to check external sources of the information provided internally by the company. But what if the ledger of such an enterprise is in a decentralized ledger?

In a scenario like that, the auditors would be able to obtain all the information related to the financial transactions of a company without the need to confirm them through an external confirmation procedure, hence saving time and resources.

An environment where all the ledgers would be easily accessible, cross-checks of transactions would be still possible. So, if company A has a liability with company B, by cross-checking the respective public ledgers the auditors or stakeholders can automatically verify whether the transactions are correctly recorded.

Conclusion

Apart from the stated benefits, ready-to-access information will also facilitate the review of bank details, where the external auditors could examine all the information pertaining to a company and commercial banks, including bank accounts, loans, guarantees, and signatory powers. Blockchain can remodel the conventional techniques for invoicing, paperwork and contracts as it provides a canonical source of truth. To understand how blockchain can help your financial services firm, drop your email here.

You may also like: Forecasting Blockchain’s impact on SMEs in the Coming Five Years

The post Fixing Traditional Auditing: A Brief Overview of Blockchain in Auditing appeared first on Deqode Blog.

62% of the auto industry expects blockchain technology to become a “disruptive force” within it by 2021.

IBM

Although the automotive industry realizes the potential impact of the blockchain technology, it is still in the early stages of blockchain adoption. Our analysis team has identified a broad spectrum of viable blockchain use cases in automotive. These use-cases will help in facilitating collaboration among participants and enabling capabilities for new business models.

Blockchain in Vehicle Manufacturing

Tracing and verification of parts

In a blockchain-based manufacturing supply chain of vehicles, information related to vehicle parts such as its manufacturer, date of manufacturing, etc. will be captured and stored on blockchain. As the parts change hands while moving from the manufacturer to the end customer, information will keep updating on the blockchain. This will enable all the stakeholders – such as the service center, car manufacturer and customer to trace and verify the origin of vehicle parts through the supply chain to the original manufacturer.

A blockchain-based system will provide a unique digital ID for each part manufactured which will contain key data, such as manufacturing date and ownership-related information. In case of part failures or accidents, blockchain could help to identify the root cause, decide who should be responsible, and settle disputes.

Targeted recall

A solution based on blockchain technology will enable car manufacturers to identify vehicles that contain defective parts, and issue targeted recalls or service bulletins for these vehicles.

A blockchain based solution will help drastically reduce the costs of recalls. The solution will also track the status of the recall. For instance, the solution can track the vehicles received by the dealer for repair. This tracking can be used for regulatory reporting to the government.

Suggested reading: A strategic approach to drug recall

Process Optimization

The automotive manufacturing process has an opportunity of implementation of various use cases. For example, a distributed ledger can contain bills of lading for vehicle components, quality-inspection records created during the manufacturing process, and WIP information for each vehicle assembly from start to finish. This would help the required authorities track the parts in real-time.

This blockchain use-case in automotive supply chain provides inventory visibility to the manufacturers like never before. With such a great degree of visibility, manufacturers can predict demand spikes, recalls etc. and manage their manufacturing schedules.

Connected supply chain

Blockchain technology can be applied to each of the phases of the supply chain: from product inception, designing and development to distribution and financing. It will connect automotive supply chain from manufactures automotive organizations to seamlessly order or sell, track and pay for goods once they arrive at their destination. This will have the following impact:

• Firstly, the relevant data will be captured, stored, and updated on blockchain. Transactions will be viewed and verified by all the parties in the blockchain network.
• Secondly, the initiation of payment processing could be done automatically through smart contracts.

Connected IoT sensors and smart devices could measure the condition of containers. IoT applications help to monitor, manage and control devices remotely and create new actionable insights from real-time data. IoT devices can record and maintain the complete history of a vehicle – including repairs and maintenance history.

Suggested reading: Blockchain meets supply chain finance

Unorthodox Blockchain Use Cases in Automotive

Peer to Peer Sharing Ride-sharing and on-demand mobility services (MaaS)

A blockchain-based P2P ride sharing platform will provide a trustless system for customers to rent out their vehicles for other people to use. Users and car-sharing providers (fleets, organisations or individuals) would register themselves on blockchain. Once all the relevant participants are present on the blockchain, they can exchange data securely and seamlessly. This car and ride sharing platform will allow individuals and fleet auto owners to lease their vehicles for short-term.

An authenticated user would be able to access this platform through a mobile app, which will provide the details of cars that are available for renting. A car could be booked and paid for using the app. Data would be stored in a decentralized manner – therefore the app would know how much to charge for the use, with the transaction securely taking place on blockchain. The app would also process all payments following completion of the trip and update the user’s record with a history of that trip.

Data associated with each vehicle:

• Vehicle Location
• Keys to unlock the car
• Agreement terms (Cost per mile, insurance details , etc.)
• Payment information

It is worth noting that rides using a blockchain-based platform wouldn’t require to be confirmed by any central authority – and the platform would efficiently handle the surge pricing mechanism.

Auto leasing and finance

A blockchain platform that facilitates vehicle tracking would be a game changer for auto deals. Dealer management system created on blockchain will leverage secured communication and eliminate data risks in the leasing sector. The platform would connect the involved entities when leasing a vehicle to a customer in a secure way. From performing KYC customer checks (e.g. licence and credit check) prior to leasing the vehicle, storage of leasing agreement/contract on the blockchain, to automated payment once the vehicle has been returned – the platform would seamlessly handle all processes.

Toll Booths

Vehicles will be able to pay their toll taxes automatically as they pass through the toll booths. IoT applications will monitor and detect the vehicle information, and send data to the distributed ledger. The smart contracts associated with the ledger will initiate payments from the vehicle owner.

Suggested reading: Guide to Smart Contracts

Conclusion

The automotive industry is in the very early stages of implementing blockchain at commercial scale. So, while it’ll take time for a full-scale adoption – it’s time that the companies start shaping their blockchain strategies.

Does your automotive business need blockchain? Drop your email here to find out.

The post Driven by Innovation: Why the Automotive Industry Should Take a Leap of Faith into Blockchain appeared first on Deqode Blog.

EOSIO is an open source blockchain protocol. So, individuals and organizations can use it to set up their own blockchain networks.

The first step is to clone eosio from https://github.com/EOSIO/eos with –recursive flag.

Now, we’ll build EOSIO. EOSIO community gives an automated build script for the following environments:

• Amazon 2017.09 and higher
• Centos 7
• Fedora 25 and higher (Fedora 27 recommended)
• Mint 18
• Ubuntu 16.04 (Ubuntu 16.10 recommended)
• Ubuntu 18.04
• MacOS Darwin 10.12 and higher (MacOS 10.13.x recommended)

EOSIO smart contracts are, usually, coded on C++. So, you have to specify a header file with the declaration of functions (that correspond to smart contract actions) and a .cpp source file with their definitions. This leads to the creation of .abi (Application Binary Interface), which holds all the actions that the smart contract has. In addition, external systems need this file for executing the smart contract operations.

EOSIOCPP

EOSIO provides and recommends a compilation tool called eosiocpp.
for the compilation of the smart contracts.

EOSIO ships with its standard c++ libraries, i.e., when you clone the source, you will notice a folder: {$PROJECT_ROOT}/contracts/libc++ ⇒ This directory has all the standard c++ library headers and this is where eosiocpp looks for the included standard header files.

A detour to .wasm

WebAssembly (abbreviated Wasm) is a binary instruction format for a stack-based virtual machine, and has the following features:

• Designed as a portable target, high-level languages like C/C++/Rust use Wasm for compilation. It enables deployment on the web for client and server applications.
• Secondly, it enables executing code nearly as fast as running native machine code.
• Thirdly, it speeds up the performance of critical parts of web applications by complementing JavaScript, and so, enables web development in languages other than JavaScript.
• Engineers from Mozilla, Microsoft, Google, and Apple develop Wasm at the World Wide Web Consortium (W3C).

Click here to find out more about Wasm. 

EOSIO smart contracts – a brief overview

If you have clicked on this article, you probably know a bit about smart contracts, but let us quickly establish a definition to proceed. Smart contracts are self-executing contracts. Here the buyer and seller ‘code’ the terms of the agreement on blockchain. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. Smart contracts allow trusted transactions and agreements among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism. So, they render transactions traceable, transparent, and irreversible.

There are a couple of preliminary things that need to be carried on before we jump on the deploying our escrow smart contract. The official documentation page for EOSIO has this in a very clear and precise manner.

Suggested reading: Multi-Node Setup and Smart Contracts in Graphene

Escrow Smart Contract

An escrow is basically a buffer where the token (currency) involved in the transaction is temporarily held. It is held till we know that the transaction can be completed without dispute. So here, the operation under focus for this article is estransfer ( i.e escrow transfer). This is the operation used to transfer the fund from the sender to the escrow. It is complemented by esrelease which releases the funds from the escrow to the recipient.

First, define the class for your smart contract in the header file.

Now, all the member functions corresponding to the actions should be made public. The .abi file of the smart contracts should have their declaration.

Since our escrow smart contracts also issues the tokens needed for transactions it needs to have a table to store the data corresponding to the issued token and the balance for any account of that token. This is done using the multi_index container provided by the EOSIO library (which is modelled after boost::multi_index_container) as follows:

Tables:

The two tables defined are accounts and stat. Firstly, different account objects make up the accounts table. Each hold the balance for a different token. Secondly, the stat table is made up of currency_stats objects (defined by struct currency_stats), that holds a supply, a max_supply, and an issuer. Before moving on further, it is important to note that this contract will hold data into two different scopes. The accounts table is scoped to an EOSIO account, and the stat table is scoped to a token symbol name.

According to the ‘eosio::multi_index’ definitions, code is the name of the account which has write permission and thescope is the account where the data gets stored.

Scope

The scope is essentially a way to compartmentalize data in a contract so that it is only accessible within a defined space. The accounts table uses EOSIO account as the scope of the token contract The accounts table is a multi-index container which holds multiple account objects. Token symbol indexes every account object which contains the token balance. When you query a users’ accounts table using their scope it returns a list of all the tokens that the user has an existing balance.

This is our smart contract’s header file.

.cpp implementation

The .cpp source file has the actions implemented. Definition of our estransfer action starts off with some assertion checks:

Firstly, we assert checks if the sender and receiver accounts are not same, then we check that the transaction has an authority of the sender, authority for a transaction can be specified by using -p flag with cleos.

Next, we fetch the table corresponding to the current token.

These lines notify the specified accounts after a successful transaction

A few more checks follow this:

Finally, we call the two most important utility functions, add_balance, and sub_balance, the former adds the tokens to a specified account and the later deducts it.

Let’s look at sub_balance in a little more detail

First, we fetch the table of accounts objects, the account being that of the sender in estransfer. A few minor checks follow this. If all checks pass, you should modify the account’s balance by subtracting the value to be transferred. Once, the number of tokens to be transferred are equal to the total available tokens in the accounts, we essentially delete the entry for the sender account from the accounts table.
Here is our escrow.cpp file in entirety.

So, this is the structure of the ABI file that documents the actions of the smart contract.

Here is the escrow.abi file:

Working with our escrow smart contract using cleos (command line utility as provided by EOSIO).

First, we need to set the contract and create a token

Now, we can check at the moment if any account has some token balance for the token we just created, and the result should not surprise you.

Post the setting of escrow smart contract and the creation of token balance, we can push the action for issuing this token to some user “ned”.

Finally, when we check the account for “ned” we can see the token balance for this account

We are in a situation to transfer funds from “ned” to “jon” (R+L=J)

Now, we have used the account “escrow” with which we had deployed the smart contract as our Escrow for this transaction.

Then, we can check the balance for “escrow”

Finally, this is the final table structure after pushing the release action.

That’s the end of this tutorial. For any doubts, please email the author at aktiwari@deqode.com. For developing an application based on EOSIO, please drop your email here.

Must read: Understanding Blockchain, Its Scalability Issues, and their Solutions

References

One stop developer’s doc: https://developers.eos.io/

Resource for pushing actions using eosjs lib: Steemit

The post A Game of Chains: Guide to Smart Contracts on EOSIO appeared first on Deqode Blog.

“Blockchain solves the problem of manipulation. When I speak about it in the West, people say they trust Google, Facebook, or their banks. But the rest of the world doesn’t trust organizations and corporations that much — I mean Africa, India, the Eastern Europe, or Russia. It’s not about the places where people are really rich. Blockchain’s opportunities are the highest in the countries that haven’t reached that level yet.”

Vitalik Buterin

The concept of decentralized systems

Decentralized systems enable us to store assets in a network that can be accessed over the Internet. These assets can be anything – ranging from a small data entry to meticulously prepared documents. Through decentralized systems, the owner has direct control of them via their private key, which is directly linked to the assets. The owner can transfer the assets whenever desired, and to anyone.

The core idea of decentralized systems is to remove the control of a single entity like a government, a bank, or a multinational company in the network. Decentralization could help us in the following way:

• Empowered users: Decentralized systems allow the users to keep control of all their information and transactions.
• Fault tolerance: Decentralized systems are less likely to fail accidentally because they rely on many disparate components.
• Durability and attack resistance: Because blockchain does not have a single point of control and is able to survive malicious attacks, the decentralized systems make it extremely hard to attack and destroy, or manipulate data.
• Free from scams: It is much harder for users in decentralized systems to indulge in ways that will benefit them by causing harm to other users.

Other benefits include

• Removing third-party risks: This technology enables users to make an exchange without the intermediation of a third party, thus eliminating risk.
• Lower transaction costs: By eliminating third-party intermediaries and overhead costs for exchanging assets, blockchains have the potential to greatly reduce transaction fees
• Transparency: Changes to public blockchains are publicly viewable by all parties creating transparency, and all transactions are immutable, meaning they cannot be altered or deleted.
• Authenticity: Because of the decentralized system the blockchain data is complete, consistent, timely, accurate, and widely available.

The Internet transformed our lives by decentralizing the access and flow of information. The next phase has now begun. Causing the paradigm shift, blockchain technology can truly influence industries and make the processes more democratic, secure, transparent, and efficient.

Suggested Reading: An Introduction to Blockchain for FinTech

The concept of distributed ledger

Blockchain in its simplest form is a public ledger that provides information of all the participants and all digital transactions that have ever been executed. A block is the prevailing part of a blockchain which is supposed to keep the record of the recent transactions, and once they are completed, it goes into the chain. Blocks are added in a sequential manner with the next block containing the hash of the previous block. A new block is generated as soon as the previous block gets entered in the blockchain database.

This process helps in recording of each transaction and sharing it across the network. Every user in the network can validate transactions and has an identical copy of the ledger to which the encrypted transactions can be added. Any changes to the ledger are reflected in all copies in minutes, or in some cases, seconds. Through the use of keys and signatures, the security and accuracy of assets is maintained cryptographically and are controlled by the participant. The end result is a highly efficient and secure method of performing transactions and it serves as an online ledger keeping record of transactions that can’t be changed.

Additional benefits that this concept provides is:

Fraud protection

Firstly, nothing can be changed on blockchain – and as the ledger is present across multiple nodes, it is easier to track.

Management

Secondly, with all transactions being added to a single public ledger, it reduces the clutter and complications of multiple ledgers.

Ownership

Thirdly, distributed ledgers can provide new ways of assuring ownership and provenance for goods and intellectual property.

Removal of mediator

Blockchain removes the need of a mediator and replaces it with a network. In this way, it can also decrease the settlement times of many payments transactions.

The two concepts discussed above show how blockchain provides a tamper free environment for the participants in the network. Blockchain network automatically checks and updates itself every few minutes. This helps in providing a self-reviewing and a robust system, and results in:

Transparency

All data is embedded within the network which makes it public.

Immutability

If anyone tries to alter the block data on the blockchain, it would require a huge amount of computing power to get ahead of the entire network. Hence, it proves that the system cannot be corrupted easily.

No single point of failure

All the data is linked and verified at every block.

The nodes, together, create a very powerful network. Every node is an administrator of the blockchain. Nodes have incentives for participating in the network. They compete in order to have the chance of winning digital currencies by solving computational puzzles. This way, these specific nodes are said to be mining for the recent blocks which contain all the details of the recent transactions.

The following two concepts complement these features:

The concept of hashing

There are many cases where authenticity of data and documents is very important. Many organizations have very sensitive documents, assets, or contracts that need to be protected. When data, a file, or a document is stored, a hash is created for each file. A hash is like the fingerprint that through an algorithm, turns data into an output of fixed length which is unique for every single transaction.

Every block can be divided into two parts, namely the header and the transaction part. The header includes the previous block’s hash and it references the previous hash it is building upon. It also stores the hash of the current transaction which is meant to be connect the next block when added. The blockchain is distributed and updated with the new block added. In this way, other locations can continue to maintain it if any of the copy of blockchain is compromised. This makes the blockchain immutable. By comparing the hash of the data the authenticity of the data can be verified which helps in achieving an independently verifiable system.

The concept of minting

There are many ways through which one can mint coin. As mentioned above, the most observed method is mining, but other methods have also been proposed. Let us take the case of one of the most popular cryptocurrency: Bitcoin. The Bitcoin community uses mining. Now, every network uses a ‘consensus’ algorithm for facilitation. Bitcoin uses an algorithm called ‘Proof of work’. It is a protocol by which somebody can effectively prove that they have engaged in a significant amount of computational work.

The idea behind mining is that it requires solving a computational puzzle.

The role of the miner is to create the block containing a number of latest transaction, it has to encrypt data by all the computational process and thus provide the proof of work. The miner gets rewarded financially by doing it. The miners compete with each other in order to be the first one to add the recent block on the top of the blockchain. The added block is then verified by other nodes when other blocks are added on top of it.

Let us try to understand another algorithm for better clarity: Proof of stake.

It does not involve any computational work at all. The idea is that traditional mining seems to have an unnecessary step – the miners earn monetary rewards in the form of Bitcoin using which they have to spend money – in order to buy power and equipments in order to operate their mining rigs – which will again be used to solve puzzles and in turn the get earn reward. In Proof of stake, the process of achieving the same goal is quite different. The creator of new block is chosen depending on the stakes. This helps in removing the external step of having to use the actual power and actual hardware. It would also help in lowering the overall cost of the mining process.

“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”

Don & Alex Tapscott, authors Blockchain Revolution (2016)

Must read: Why it’s time for automotive industry to take a leap of faith into blockchain

It is worth noting that a blockchain can also be private.

They could be made accessible only to invited members and validated by administrator(s) or a semi-autonomous guiding algorithm. Public blockchains are truly open disintermediated networks, but private blockchains are often used to coordinate closed networks holding sensitive information. These private blockchains will likely be the prevailing means for storing disintermediated energy information like meter and payment data.

One of the major uses of blockchain that has popularized the technology is smart contracts. A smart contract is similar to a contract in the physical world. But, it’s digital and is represented by a computer program stored inside a blockchain. Smart contracts are pretty important to understand to get a deeper look at the utility of blockchain technology.

Smart contracts

The classic example used to demonstrate smart contracts in the form of code executing automatically is a vending machine. Unlike a person, a vending machine behaves algorithmically; the same instruction set will be followed every time in every case.
When you deposit money and make a selection, the item is released. There is no possibility of the machine not feeling like complying with the contract today, or only partially complying (as long as it is not broken). A smart contract similarly cannot help but execute the prespecified code. As Lessig reminds us, “code is law” in the sense that the code will execute no matter what. This could be good or bad depending on the situation; either way, it is a new kind of situation in society that will require a heavy accommodation period if blockchain-based smart contracts are to become widespread.

Melanie Swan

Blockchain: Blueprint for a New Economy

A smart contract is a piece of software that stores rules for negotiating the terms of an agreement. It also automatically verifies fulfillment, and then executes the agreed terms. Since a smart contract removes reliance on a third party when establishing business relations, the parties making an agreement can transact directly with each other.

A smart contract is stored inside a blockchain – where all data is stored in a distributed manner, so no one is in control of the data.

In a decentralized business model, smart contracts replace any other trusted third party. Smart contracts are implemented within blockchain, therefore they inherit some of its features:

• Immutability: A smart contract can never be changed, therefore no one can tamper with or break a contract
• Distributed: Just like any transaction on a blockchain, everyone in the network validates the outcome of the contract. Distribution makes it impossible for an attacker to force control to release funds, as all other participants would detect such an attempt and mark it as invalid

Blockchain technology could provide the infrastructure for sophisticated networks that manage payments, sales, trading, and distribution. Given their potential to streamline transactions and cut costs, blockchains and smart contracts could help to remove pain points and friction throughout the power value chain. To learn more about how blockchain could help your business, drop your email address here.

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